Waste Management Maintains Core Focus for Higher Margins

On Dec 4, we issued an updated research report on leading comprehensive waste management services provider, Waste Management Inc.WM.

Waste Management is successfully executing its initiatives to refocus on core business activities and instill price and cost discipline to achieve better margins. At the same time, the company aims to improve customer retention by providing better services and higher value solutions. Waste Management's successful cost-reduction initiatives have further helped it achieve remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth over the quarters.

In addition, Waste Management plans to return significant cash to shareholders through healthy dividends and share repurchases in the future. A steady dividend payment policy is part of Waste Management’s long-term strategy of providing attractive risk-adjusted returns to its stockholders. The company’s investment strategy takes a holistic view of the rapidly evolving market and deploys a dynamic capital allocation approach to execute its growth strategy. Furthermore, decent dividend increases at periodic intervals have been one of the company’s most attractive features.

With strong yield, volume, and cost performance in the third quarter, the company has raised its guidance for 2017. It expects 2017 adjusted earnings in the range of $3.19 to $3.21 per share compared with earlier expectations of $3.14 to $3.18. Free cash flow is expected between $1.7 billion and $1.8 billion, up from previous expectations of $1.5 billion to $1.6 billion. Such a bullish outlook raises investor confidence in the stock.

With diligent execution of operational plans, the stock has outperformed the industry year to date with an average return of 15.4% compared with 12.1% gain for the latter.

However, stringent government regulations are likely to contract margins as compliance with such regulations increases operating costs for the company. In order to develop or operate a landfill or any waste management unit, facility permits and other governmental approvals are necessary. These permits and approvals are often difficult to obtain, are time consuming and costly and could restrict its operations. All these are likely to impact the company’s profitability in the long term.

S&P Global has a solid long-term earnings growth expectation of 12.5%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 11.1%.

TransUnion has a healthy long-term earnings growth expectation of 10%

Accenture has a solid long-term earnings growth expectation of 10.3%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 2.6%.

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